Motley Fool Money - Snap, Startups, and Silicon Valley

Episode Date: March 3, 2017

Snap has a big debut on Wall Street. Domino's delivers. And Target misses the mark. Plus, best-selling author Brad Stone talks about his new book, The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. We'll talk Silicon Valley Startups with best-selling author Bradstone, and as well as well, always, we'll give you an inside look at the stocks on our radar. But we begin with the hottest IPO in years. Snap went public on Thursday at $17 a share and quickly shot up more than 70 percent as it closed in on a market cap of $34 billion. It is the biggest tech IPO since Alibaba went public in 2014. You tell me, Ron, is this excitement and enthusiasm or is this

madness? I hate to rain on everyone's parade. This is ridiculous to me. Literally, ridiculous, but there are more people who are optimistic than pessimistic because we see the stock continue to rise. Company is not profitable. I guess a billion dollars ain't what it used to be. The big deal here for me is that there is slowing user growth here, and they need to really turn that around. So one analyst estimate that said they'll need to grow for the next 10 years at more than 50%

every year with a profit margin of 25% to justify the current valuation. I don't see it happening. And unless you're a social media expert and can look out. five or ten years down the road at what the landscape's going to be and what Snapchat can possibly do, then you have no business investing in this company. And I don't want to tell people what to do. They certainly, it's a free country, but it's gambling unless you have that insight. Some strong words, and I don't disagree with Ron. Really, it's like many IPOs, it's you are gambling. No one, it's like trying to predict the weather three to five years from

now. You can't do it. But some kind of the markers are there, which is, as Ron mentioned, my biggest concern is user growth as well. It only grew 7% and 3% respectively, the last two quarters. I mean, that's close to nothing. They have 160 million daily users. Facebook had 520 million daily when it went public. And that said, you often hear about the demographics. These are mostly 18 to 24-year-olds. But so far, SNAP is only making $1 in revenue per user per quarter, and their expenses far outweigh that. So it's going to be losses from here for at least a couple of years going forward. And, you know, Chris, sometimes you go public because you have the cap by the tail and you need the money to really push on the accelerator, and that's part of the situation here.

But you also sometimes rush to go public because your metrics are slowing and you want to get out the door before that really happens. I think it's a combination here. User growth of that slow magnitude speaks something of Twitter. That slow magnitude, I'm going to coin that phrase. It's hard to talk live real time. Yeah, when user growth is slowing that much, you're not Facebook. You're looking more like Twitter.

Yeah. And Jason, a good reminder that Jeff just touched on. When a company is getting ready to go public, they want to look as good as possible. They want their books to look as good as possible. So this is about as good as it could get for SNAP in terms of their financials up to this point. Yeah, I think so. It was interesting. There was a point in time with the road show leading up to this.

I'm not sure how many people caught this. But when asked about that slowing user growth, and Evan Spiegel, one of the co-founders of the company, actually blamed Android hardware, saying that they couldn't really keep up with sort of the nature of Snapchat's app the way it's quick and video and a very robust platform. I kind of have a hard time making that leap right there. But I think that if you're looking for user growth, I don't think you're going to find it here. I mean, I'm sure they will continue to grow users at a relatively modest pace. But I think the concern here is that this is a very niche platform.

with a limited audience. It does something really well, but I think it does it for just a much smaller audience out there than perhaps some might like to believe. And so, you know, if we look at it from a little bit of a maybe the last half-fullier perspective, it really caught all of our eyes when they re-identified themselves as a camera company, right? I mean, that was what really sort of made us think, what? Because it was Snapchat. We knew it was Snapchat. They changed their name to Snap, and now they're a camera company. And they think they can reinvent the camera. I mean, good luck with all that. That's fine. I appreciate that. But maybe, maybe, that is a bit of self-realization there. They know even that they're not going to be able to

really justify this valuation, these expectations, just on being that Snapchat app alone. And I think what we've seen in this space, and Facebook has certainly proven this out thus far, is that really the best strategy to win here is to become that sort of portfolio of apps that a lot of people use. So Facebook's not just Facebook, it's Facebook, it's Instagram, it's what app, WhatsApp, and whatnot. And so I think that the The bigger question then becomes, is Snapchat or is Snap the kind of company that will be able to go acquire other smaller companies, perhaps, bring them into the fold? Are they going to be seen as sort of an attractive partner? I think the jury's still out there. But there's

some signs, at least going into this, that they probably still have some lessons to learn. Yeah, and their growth slowed as Instagram launched Instagram stories. So the competitive The landscape is enormous, and you're up against some very well monetized and smart competitors. And at 160 million daily users, you're basically, you're not really at critical mass yet, in my opinion. You're not that much bigger than MySpace was back in the day. You could still see that user-based decline. That said, Chris, most hot IPOs over time are called overvalued.

The stories are out there, whether it's why I won't name names, but everyone criticized Amazon and Google. And then in the end, many, plenty of IPOs go on to create great returns, whether it was MasterCard or Google slash Alphabet, Amazon, Facebook. But many more have been disappointments. I was going to say, some go on to be Groupon. It'll be interesting to see where this one lands. But it sounds like the table is on the skeptical side. Some investors were so excited to pull the trigger on SNAP's IPO that they ended up buying shares of Snap Interactive, which trades under a different ticker symbol and does not, in fact, operate a disqualify.

appearing photo app. Snap Interactive is an over-the-counter microcap shares spiked on Thursday and promptly fell back to Earth when investors realized their mistake. Wow. Are they profitable, Snap Interactive at least? Well, they have a market cap of $40 million. They're interactive. I mean, it just sounds so modern day. That just speaks to how so many people still view the market as a speculative kind of gambling place, and that's sad to me. It makes me sad. Slow down, people. Costco's second quarter profits came in lower than a year

go and same store sales came in lower than expected as well. Costco also announced it is raising its annual membership fee for the first time since 2011. Jason, how much is that going to make up for the falling profits? Okay. So, no offense to Matt Greer here. Mack, I love you, but I want to spend a Saturday at Costco like I want to kick in the groin, Chris. And that is zero. Okay? Now, let's be very clear. This isn't even about me. This is about, I think, this is now. This is about the future generations of shoppers that are coming online here. And I think, generally speaking, most of them feel the same way. I think that people are assigning more value to their time

today than ever before. And that's really one of the most beautiful things that the internet has enabled over these past 10 years, is it has not only freed up a lot of time for us, it's offered a lot of convenience, but it really gives us the opportunity to place more value in our time. And I think that's one area where Costco is really starting to show some weakness here now. And we look at the way comp sales are going, the way top line sales are going, it is slowing down considerably. And normally you would think raising membership prices would elicit a positive reaction of the market. This was clearly the opposite of what probably some were expecting here with the stock down. And I think that's justified here because I don't know that it's reasonable to expect that they can continue to grow that membership base much more than it is today.

They'll continue, I think, to do pretty well on the renewal side. But, again, the market, it's all about looking forward. Tell me about what the future holds. And I think the future for Costco right now is a little bit nebulous. I mean, we look at the executive memberships, which, that's the higher membership costs there. Executive members make up a third of overall members, but they account for two-thirds of overall spending. And so what you like to see with Costco, they like to see those individual members trade up to that executive membership over time. I think that's a bit of a tall order because it's a significantly higher experience. there on the membership fee side. So I think still plenty of challenges here for Costco.

It's not a stock that I would really look forward to owning here in the next five years. I think a lot of what you say is fair. I'm not as pessimistic. I'm not putting the nail in the coffin, and they do sell coffins quite yet. Comstales are still positive. They do have the power to raise prices. Retention is very strong. I agree that customer acquisition is going to be a sticking point. We'll have to see the value. proposition is still there. The price points in the stores are still there. But the stock has had a beautiful run over the last decade, so not as cheap as it once was. Yeah, let's be clear. I'm not saying Costco's days are over. I mean, I'm just looking at this from the investors' perspective. I mean, I think Costco continues to exist and do just

fine. But I think if you're looking at this from the investor's perspective, I just don't see the catalyst or really the long-term trend in play here as we continue to shift towards e-commerce. And it still has quite a premium, as Ron said, it trades around 30 times earnings, so it's expensive. And you know, Hoffins may be going the way of the dodo? Yes. Everybody wants to be cremated these days, right?

Well, not yet. Target shareholders had their worst week in years after a disappointing fourth quarter report. Profits came in lower than expected, and Ron, overall sales falling for the sixth quarter in a row. Not a great quarter. They're a bit behind the eight ball here. They are probably where Walmart was a couple of few years ago. They need to catch up. They've had some data breach problems and some Canada problems to deal with. So, they now need to refocus. Same store sales were weak. They're not where they need to be from an online perspective, Amazon, kind of eating their lunch, as well as everyone else's lunch, I guess. They are pouring money, though, into some of these

problems. Hopefully, money is going to be able to fix them. They're going to launch 12 new brands. We'll see what that entails. But they need to really bolster their online business. It was up 34 percent, quarter, which is a good number, but it needs to be even more robust than that. They need a few more quarters, just like that. They do. Yes. So, guys, if we have time, targets at 12 times earnings, it yields more than 4%. Is there something special there that's going to let this be a good investment in the long run? Do they have something that'll keep them? I mean, what's your 10-second answer?

I think they'll continue to be profitable. I think they'll grow profits not very significantly, but I think it can be a growth business of the CVS brand inside the targets. I like. like that. But it's a tough landscape out there. As Warren Buffett says, retail is tough for him. If it's tough for him, it should be tough for all of us. Shake Shack's fourth quarter revenue grew more than 40 percent. And that's pretty tasty, except that a lot of that is from opening up new locations. And Jeff, the same store sales, very much a different story. Yeah, 1.6 percent same store sales. Very slow for this company. I mean, Olive Garden saw 2.6

percent. So that's our man on the class. Steve Broido. He's getting that done. And when the stock trades at 66 times expected earnings for this year, it's not going to hold up on that sort of same store sales. That said, they're executing well. They are facing higher labor costs, both this year and the next few years, as minimum wage goes up in a lot of states where they operate. They have 96 domestic-owned locations now, and their long-term target, Chris, as you may know, is 1,200.

So that's what Wall Street sees as the long-term story here, and that's why they like the per-store The store dynamics are spectacular with more than 3 million in revenue per store. But with low single digit same store sales guidance, 2 to 3 percent this year and long term, it's hard to justify the price, in my opinion. We are short shares in pro, just a small position. Coming up, more earnings and a few stocks we've got on our radar. Stay right here. This is Motley Full money.

As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. Don't buy yourself stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill, here in studio with Jason Moser, Jeff Fisher, and Ron Gross. Palo Alto Networks is in the business of cybersecurity. Second quarter revenue came in at a record $422 million, and Wall Street was so impressed. Shares of Palo Alto Networks fell nearly 25 percent this week. What happened, Jason? I think this is one of the more difficult markets in which to invest. I think it's really tough to not only identify the winners in cybersecurity, but then to understand why they can do

it sustainably. So for me, there are a lot of reasons why I sort of look at this and just take a pass. And I think with Palo Alto, I mean, the fact of the matter is that sales are slowing down considerably. And when you have a stock that has been trading it, really some pretty high valuations there. And even after the sell-off here, it's still at 46 times non-gap numbers for 2017, you have to lob up those growth rates. And if you don't lob those, them up. I mean, the market is going to punish you, and that's what's happened here today. It's based on more competition in the space. It's based on the fact that the customers are deliberating a little bit more about what they want to spend and with whom. You combine that

altogether. The sell-off makes sense. It's not to say that Palo Alto is not good at what they do, but again, investors need to identify why they're so good at it, and is it something they can do on a sustainable basis? It sounds like today there's some competition out there that's giving them a run for their money. Shares of Domino's pizza hitting a new high this week after fourth quarter profits and revenue came in higher than expected. Ron, they are crushing it over there. How do they keep doing it? It posted the highest domestic same-star sales growth of the top 25 U.S. restaurant chains.

Domestic same-store sales up 12%. They increased their long-term forecast. Their mobile technology platform has really helped them continue to increase sales. The international sales were the one-week point, but that was still up. 4%, so really not that bad at all. There's some expectations for a bit higher, but I don't have any concerns there. Papa John's reported recently. I know, Jeff, you're familiar with Papa. Not so great, not terrible for Papa Johns, but Domino's much, much stronger. So they continue to get it done, raise their dividend 21%. Let's go to our man behind a glass. Steve Broido. Steve, we know you love the

Olive Garden, but how do you take your pizza? Just pepperoni, please. Just straight up. That's right. No messing around. Simple. Let's go to the stocks on our radar this week. Ron Gross, you're up first. What are you looking at? So one of our most recent total income recommendations is a company called Rollins, R-O-L. They're the pest and termite control company that most people may know under the Orkin and Western brand names. Really solid performer, increased revenue and earnings every quarter over the past

decade through both acquisitions and organic growth. They've increased their dividend every year for the past 15 years. The yield is only 1.3 percent, but hopefully that will continue to grow. I think the stock has upside from here. Steve, question about Rollins? It seems like the world is getting increasingly afraid of chemicals. What kind of chemicals we put in our soil? Is this a problem for them? They have to be careful. There's difference between pesticides and herbicides, but I bet people are more afraid of bed bugs than they are of chemicals. Thanks for that thought. Jason Moser, what are you looking at?

Yeah, let's stick with the pizza theme here. Jeff, you'll like this one. I'm going with Papa John's, ticker PZZA. Big sell-off here after earnings, I think, somewhat warranted. I do get it, but the stock has been a tremendous performer here over the last five years. I think that's really attributable to a few things. I mean, it's a simple concept. They're just selling food, so it's a nice repeat business there. The franchise model allows them to grow very quickly, and they have a very good mobile presence, which I think is taking advantage of a consumer that is shifting more and more over to that mobile front.

There are some concerns there on the call. Management used some pretty flimsy excuses there in regard to the weaker numbers for the quarter, about unseasonably warm weather and lower NFL ratings. Just kind of go a little bit further to connect those dots, I guess. Poor tasting pizza. Yeah, it's not the best pizza in the world, but they've proven to be very good at what they do, much like Domino's. It ain't the best in the world, but it's getting it done.

Pizzas like the sun coming up, you know, it's just very reliable. So I think that with Papa John's particularly, big opportunity there's still internationally. I mean, only around 1,650 stores today internationally. We compare that at Domino's. Domino's has about 8,000 locations internationally. So I think there's an opportunity for Papa John's to spread that franchise model out. The sell-off after this earnings, I think could be a window of opportunity for investors. Steve, question about Papa John's? This seems like a dinner business. Is there a way to make this more of a breakfast and lunch

business? Steve, I mean, if you're not eating pizza for breakfast, I don't even feel like I know. You're missing out. Jeff Fisher, what are you looking at this week? Al-B-Marl, ticker is ALB. They are a leading lithium producer in the world, actually. And almost all of their supply, about 80% of it, is under long-term contract already for the next three to five years, because lithium demand is soaring as we use more lithium batteries. The price of lithium, by the way, has about

doubled since 2013. So it's a boom industry for them. The stock is doing very well as well. Ticker is ALB. Steve, question about Al-BOMAR? It's more of a question about battery. Should I buy generic or should I go with Energizer? You've got to go with Energizer. If you go to Costco, It's a good price anyway. Steve, three very different businesses here. Pesticide, pizza, and lithium. What do you like? I don't like any of these, to be honest.

But I'll have to go with the lithium company. That sounds pretty cool. All right. Where do you order your pizza from, by the way, Steve? Usually dominoes. They've got a local close. It's close. It's proximity for me is how close are they, you know?

Just pizza or you go for like some chicken? Just pizza. Papa John's shareholders. You can email your angry emails to Radio at Fool. All right, guys. Thanks for being here. Next, bestselling author Brad Stone talks startup, Silicon Valley, and more. Stay right here.

You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. At last week's Motley Fool event in Arizona, I got the chance to talk with Brad Stone about his new book, The Upstarts, how Uber, Airbnb, and the killer companies of the new Silicon Valley are changing the world. This was in the wake of public charges about sexual harassment at Uber and the news that Google is suing Uber for allegedly...

stealing the intellectual property behind Google's self-driving cars. So I began our conversation by asking Brad Stone about these recent controversies. I'd say generally, you know, what made Uber successful in the first place has made it vulnerable to these sorts of things. And let me explain what I mean. You know, this was a company that came into, you know, a regulation encrusted industry that had defied any attempts, all attempts, at transformation for many years. There were many entrepreneurs who tried to do Uber before Uber and just failed. And in fact, I talk about them in the book. They played by the rules.

They were too nice. And in Uber, you had a company that was run by, you know, a headstrong, pugnacious, you know, some would say, are we allowed to swear here? We're all adults. Okay, so. You know, let's admit it. Like, a really aggressive guy. And it worked, you know, he came in, guns, blazing, you know, was able to change the mind.

of lawmakers and regulators and city councils and in state legislators and prioritized growth all around the world when he had clones popping up in every part of the globe and a couple of problems with that one he was very clearly not prioritizing a professional HR organization as he's building Uber that's clear I mean I'm not sure what is worse in that blog post the fact that the author was subject to you know the sexual harassment that she was or when she is. alerted HR about it, they tried to sweep it under the rug and protect the manager, right? That's almost equally as bad. So he was not, in some ways, he's evolved as a CEO and matured. He certainly has, and Uber has grown as a company, but clearly the guardrails of a professional high-class

HR operation were not in place. So Travis Kalanick at Uber, at Airbnb, his counterpart is Brian Chesky. And one of the things that's striking in your book is how, and maybe this is, you know, part of the subtitle of the new Silicon Valley because I think if you've paid attention to Silicon Valley and successful companies, we're used to a certain type of success or rather a certain type of profile. We're used to a Bill Gates or a Mark Zuckerberg or even a Jeff Bezos where they are not necessarily the nicest person in the world, but they are. techies. They've built a better mouse trap and so it almost doesn't, they don't have to be salespeople and Chesky and Kalinick are very much, you know, because as you said, with Uber, they weren't the first to do ride sharing. Airbnb is not the first in their space, but you've got these CEOs who are almost tireless salesmen.

I had a lot of fun talking to a lot of venture capital. in Silicon Valley who got the business plan for these companies and who passed, right? So apparently 150 of the 165 investors who got the original email from Angel List, a syndicate, an investment syndicate, for a company called Uber Cab in 2010, 150 of the 165 people didn't even respond. And actually one guy unsubscribed from the email list after he got it. And the reason, and as you say Chris, is like these investors pattern match, They looked for what was successful the last time.

It's probably one reason why sexism is so entrenched in the technology industry, because it's a little bit of a boys club, and male founders succeeded in the past, and so male venture capitals tend to invest in other men. But in terms of these companies, you had Brian Chesky and his founding team at Airbnb. They were graduates from the Rhode Island School of Design. So they were designers.

Travis Kalanick, as we've established, kind of a, you know, kind of he had a reputation all. already in the valley. And you had two companies that were clearly going to be basically hand-to-hand combat regulatory fights in every city and every state and every country around the world. So these investors looked at all this and said, this one's not going to go anywhere. And of course they were terribly wrong. So I think you had entrepreneurs and then companies that just surprised a lot of people.

And to your point, the Zuckerbergs and the Gates and the Larry Pages are introverts. They're not. They're not, look, there are a lot of things. They are not charismatic. And it turns out that, you know, a Brian Chesky, a great storyteller, really in some ways a great politician, that's what you needed to go and weave together a coalition of your customers and your supporters to go and fight these battles and change the laws

in places like New York City and Paris and Madrid. So their skill set was actually very well-tuned to the challenges that these companies faced. And as you said, they do go before the city councils. they do meet with the politicians to try and execute these type of changes. They don't start out that way, though. They essentially flaunt the law and just say, no, we're going to do what we're going to do, and we're going to offer a value proposition that is so great

that people won't care that we're breaking the law. And I'm curious, while that has gotten both of these companies to the point that they are right now, so clearly that has worked, What is the regulatory future for these two companies? Because I'm guessing it's going to be a little different. Yeah. And there's a lot of nuance in there, and I think the stories are a little different for each. You know, Airbnb, it definitely was illegal in places like New York City.

Not Airbnb specifically, but there were laws on the books to prevent people from doing illegal hotels. And you weren't supposed to rent your home for less than 30 days. Airbnb thought it kind of had established a loophole, but they had. It did not go out of their way to warn their customers or warn their hosts that they could be breaking the state law or their leases. And in fact, some people got fined and in trouble. But the plan was to get so big that they would have the political muscle to go and change the law.

Interestingly, in Airbnb's case, it almost hasn't happened. There's more of a backlash now toward Airbnb than I think to Uber, which I'll get to in a second, there are places like San Francisco and Seattle and L.A. and all in New York State that are in almost open revolt against Airbnb because, you know, this is, it changes the character of communities. Not all neighbors want to see, you know, tourists coming in and out of their house at 2 a.m. You know, there's an undefined impact on the rental market, the housing market. And so Airbnb is investing quite a bit in these regulatory battles. Uber, I would say, you know, they probably were able to a little more effectively, you know, marshal their customers together, go and change the laws. You know, they weren't illegal per se as much as they were kind of taking advantage of ambiguity in taxi laws.

And then when they introduced ride sharing, which is, of course, this idea that anyone can use their car and pick up someone and drive them around, you know, it was Uber and Lyft and another company called Sidecar that basically went and was able to change laws in most places. In Austin, Texas, for some strange reason, it is still illegal. But Uber, I would say, in that first wave, surprisingly, they're a little bit out of the woods. There's still little flare-ups around the fingerprinting of drivers and background checks and whether, you know, drivers, they want to fight anything that adds friction to the sign-up process,

like drivers having to come in and take a test. They usually tend to fight that. But their next round of battles is going to be around certification and legalization of self-driving cars. one of the things that comes up early in the book is as these two companies are being created there are moments for each of them many moments for each of them where if it goes the other way they're done

and so certainly the doggedness particularly I and this is just my personal opinion particularly in the case of Airbnb with Brian Chesky and his two compatriots just how relentless they were in pursuing this idea. And as you indicated, they succeed where others failed. Other than that sort of dogged pursuit of this, of making this idea succeed,

what do you think separates these two companies from the, you know, magic taxi and like the other companies was hilarious. Well, they were called cockroaches. And that was a compliment that they were, particularly Airbnb, was able to survive, like one and a half years of basically just failure and ignominy. And I think that is important, you know, that faith in the business. But if I were to select something else, I mean, and something that conjoins both companies, it's going to sound really simple. But it's just the fact that people love them. They created alternatives and economic options that did not exist.

So I'm from San Francisco. I've lived there long enough to remember when you could not get a cab to the airport or at least getting a cab to the airport was an anxiety-infused situation that made you worry at every moment that you were not going to get to your flight on time because you'd call the cab company they would you know maybe take your name and then and then they'd hang up and you'd be left wondering if and when the cab was going to come or if the cab was on its way and then had veered over to the side of the road to get somebody else and on weekend nights you couldn't get a car and i'm complaining I live in a nice neighborhood in San Francisco. Forget about somebody who lives on the south side of Chicago

or Hunter's Point in the Bay Area. You know, like, cabs didn't go there, right? That was just the ugly reality of the taxi business. So Uber created a vital service that really, I think, has improved the lives of cities. And Airbnb has given some people, and, you know, I don't know how many of you use Airbnb, but certainly for some people who do like to do that sort of thing,

it's an option. There's more variety. And in some cases, it's an economic, option that hotels don't provide. And so that's it. You know, you create something that people love and they cling to it. And when, you know, when things got hot for those companies, their customers came out to support them. And, you know, we look back in the history of tech companies at like Microsoft in the late 90s, and that didn't always happen because their products weren't loved or people felt forced to use them. I would say, you know, the thing that

distinguishes these companies is that they were able to hit that product market fit. and they had the loyalty of their users. Coming up, the prospect of IPOs. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. Let's get back to my recent conversation

with best-selling author, Brad Stone. Every business has competition. In the case of Airbnb, they are up against some pretty powerful interests in the hotel industry. and if you look at the current occupant of the White House, he's a hotel guy. There's no way the President of the United States is a fan of Airbnb.

He said that he's not. Actually, he said he kind of, this was on CNBC about a year ago. He said he admired the company, but he would not allow it on any of his properties. So, I mean, to what extent, if any, does that frighten the people, or to what extent does that keep Brian Chesky up at night? I mean, you know, the threat might be that the president would take to Twitter. Who knows, they might welcome that, considering his popularity right now in cities where Airbnb, I think, considers its customers-based.

You know, it's urban base, it's young people. You know, they came out pretty heavily with a Super Bowl ad against the executive order on immigration. And I think they did that with some confidence that their constituencies might, be different than the president. So, you know, I don't think that's their concern. Their regulatory issues are local. And then to your point, you know, the big challenge is they're not taking anybody by surprise anymore. You know, you had Marriott acquiring Starwood last year, Expedia, acquiring home away. Like, Airbnb has warped the fabric of the hotel and travel industry, and all these big

companies are now gearing up to meet them head on. In the book, you refer to the IPO because it's a room full of investors so let's get to the stock angle of this you refer to the IPOs of these two companies as being inevitable if you had to bet would you you know do you have in your mind the timeline which one of these companies is likely to go public before the other and which one is better equipped to be a pub being a public company is a much more difficult thing than being a private company indeed and and they have both exploited a unique capital environment where they don't have to go public, where there's always another sovereign wealth fund where they can raise another couple of billion and put off

the inevitable. They will have to go public and give liquidity to their employees and investors. Right now, both companies are sort of managing that, and I think buying back some stock from early shareholders and employees, so that gives them some more breathing room. I think they want to take advantage of this moment as long as they can and stay private because they both have obstacles and opportunities with Airbnb the obstacle is regulatory they need to figure out the ambiguity around some of these fights and then the opportunity is expanding into some of these other travel services businesses like like you know giving people something to do when they when they travel Airbnb has announced a platform called trips to go and help people with experiences and even with air travel

and things like that. But I would put them first. They have a professional CFO who they hired from the Blackstone group. It feels like a seasoned leadership team. Since you've asked for my opinion, I'm just really guessing here, I'm going to say maybe early 2018 for Airbnb. And then Uber, it feels like, you know, obviously one challenge is what they're in now

and the sort of ambiguity, you know, just around their culture. they've got this sort of meatball hanging in their future called autonomous cars, which could be just a total reset for that whole industry. So I think they have to project this idea to investors that they're going to be a leader in that, or at least not severely behind. And then they've got well-capitalized competition in Lyft that's not going away, D.D. and China. So still lots of unsettled aspects. And a valuation that's, you know, atmospheric right now, 70 billion. dollars so I think they come later and I sort of still see more opportunity in front of Airbnb right now more questions in front of Uber my personal opinion

yeah I mean you mentioned autonomous cards that was one of the thoughts I had when I was preparing for this conversation was because it because it does seem like Uber could work out their legal problems could go public and could be successful but for a shorter period of time because it really does seem like the game changer, not just for Uber, but for the auto industry in general, but it seems like if Google just decides, well, this is going to be what we're going to sink a lot of money into

and we can just bury Uber, then maybe 10 years down the line, they're gone. I will say this. When an issue like this is existential for the company, when it's live or die, you know, the company tends to do extraordinary things. And self-driving cars is not existential for Google. It's probably, you know, not existential. Well, it's, you know, certainly not for Apple, right?

And they're working on it. It is for the Detroit auto companies, and GM and Ford and Audi and the rest. They're investing, but they're not indigenous technology companies. You know, so in that respect, Uber and Tesla might be, sort of alone in seeing just the need, having the equity to kind of furnish to new employees. Uber has, you have to admit, they've bet heavily, this lawsuit was a result,

but they took some people from Google. And so I don't know, I don't think they're all that poorly positioned. But if you do feel like self-driving cars are going to be here within five years, and some people in Silicon Valley do believe that, I happen to feel it's a little bit further off. then it's going to be very hard to evaluate what Uber is worth because it is a reset moment for the industry. When Google was much younger than it is now, there was a famous inflection point in their history when Eric Schmidt arrived on the scene and he was seen being called at the time as adult supervision.

Sergey and Larry, they're great, bright young men, but we need some adult supervision. Travis Kalanick, is he a public company CEO? That might be the question, Chris, that some people are asking this week. The thing is he's 40s, right? So he's an adult. But, you know, does he have the kind of season management team around him? Or should he have a kind of Eric Schmidt-like partner with him? And, you know, I think, you know, last year they hired Jeff Jones,

a marketing executive from Target to be, I believe his title is president. And, you know, so there's some, I think, impulse there on the part of Travis and the board to kind of bring in more seasoned executives. And Jeff, you know, one of the things he's done is declare 2017 the year of the driver for Uber. And that's because, and anyone who's taken an Uber here probably knows, you know, there tends to be some resentment in that community. Like they feel kind of abused by Uber. And I like to say that every Internet marketplace has to make a decision. Are they more oriented towards supply or demand? And in Airbnb's case, the founders were hosts, and they're really supply-oriented.

You know, they do an event every year for their hosts. They kind of face that way. Whereas Uber, the founders wanted a classy rider on San Francisco. They're more demand or rider-oriented. And as a result, you know, they've lowered prices every year, and the drivers have suffered. So that's another big challenge before Uber goes public. I think they have to get to a place where their driver community is an asset and not a source a constant agitation. The book is The Upstarts, how Uber, Airbnb, and the killer companies

of the new Silicon Valley are changing the world. It's available everywhere. That's going to do it for this week's edition of Motley Full Money. I'm Chris Hell. Thanks for listening. We'll see you next week.